Pottery Barn 2012 Annual Report Download - page 22

U.S. or foreign governments or the likelihood, type or effect of any such restrictions. Any event causing a
disruption or delay of imports from foreign vendors, including the imposition of additional import restrictions,
restrictions on the transfer of funds and/or increased tariffs or quotas, or both, could increase the cost or reduce
the supply of merchandise available to us and adversely affect our business, financial condition and operating
results. Furthermore, some or all of our foreign vendors’ operations may be adversely affected by political and
financial instability resulting in the disruption of trade from exporting countries, restrictions on the transfer of
funds and/or other trade disruptions. In addition, an economic downturn in or failure of foreign markets may
result in financial instabilities for our foreign vendors, which may cause our foreign vendors to decrease
production, discontinue selling to us, or cease operations altogether. Our operations in Asia and Europe could
also be affected by changing economic and political conditions in foreign countries, any of which could have a
negative effect on our business, financial condition and operating results.
Although we continue to improve our global compliance program, there remains a risk that one or more of our
foreign vendors will not adhere to our global compliance standards, such as fair labor standards and the
prohibition on child labor. Non-governmental organizations might attempt to create an unfavorable impression of
our sourcing practices or the practices of some of our vendors that could harm our image. If either of these events
occurs, we could lose customer goodwill and favorable brand recognition, which could negatively affect our
business and operating results.
We depend on key domestic and foreign agents and vendors for timely and effective sourcing of our merchandise,
and we may not be able to acquire products in sufficient quantities and at acceptable prices to meet our needs,
which would impact our operations and financial results.
Our performance depends, in part, on our ability to purchase our merchandise in sufficient quantities at
competitive prices. We purchase our merchandise from numerous foreign and domestic manufacturers and
importers. We have no contractual assurances of continued supply, pricing or access to new products, and any
vendor could change the terms upon which it sells to us, discontinue selling to us, or go out of business at any
time. We may not be able to acquire desired merchandise in sufficient quantities on terms acceptable to us. Better
than expected sales demand may also lead to customer backorders and lower in-stock positions of our
merchandise, which could negatively affect our business and operating results. In addition, our vendors may have
difficulty adjusting to our changing demands and growing business.
Any inability to acquire suitable merchandise on acceptable terms or the loss of one or more of our key agents or
vendors could have a negative effect on our business and operating results because we would be missing products
that we felt were important to our assortment, unless and until alternative supply arrangements are secured. We
may not be able to develop relationships with new agents or vendors, and products from alternative sources, if
any, may be of a lesser quality and/or more expensive than those we currently purchase.
In addition, we are subject to certain risks, including risks related to the availability of raw materials, labor
disputes, union organizing activities, vendor financial liquidity, inclement weather, natural disasters, general
economic and political conditions and regulations to address climate change that could limit our vendors’ ability
to provide us with quality merchandise on a timely basis and at prices that are commercially acceptable.
If our vendors fail to adhere to our quality control standards, we may delay a product launch or recall a product,
which could damage our reputation and negatively affect our operations and financial results.
Our vendors might not adhere to our quality control standards, and we might not identify the deficiency before
merchandise ships to our stores or customers. Our vendors’ failure to manufacture or import quality merchandise in a
timely and effective manner could damage our reputation and brands, and could lead to an increase in customer
litigation against us and an increase in our routine litigation costs. Further, any merchandise that we receive, even if it
meets our quality standards, could become subject to a recall, which could damage our reputation and brands, and
harm our business. Recently enacted legislation has given the U.S. Consumer Product Safety Commission increased
regulatory and enforcement power, particularly with regard to children’s safety, among other areas. As a result,
companies like ours may be subject to more product recalls and incur higher recall-related expenses. Any recalls or
other safety issues could harm our brands’ images and negatively affect our business and operating results.
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